Microsoft to buy Yammer for $1.2 billion

SAN JOSE, Calif. _ Microsoft Corp. announced Monday that it will purchase San Francisco enterprise social-networking company Yammer for $1.2 billion in cash, confirming reports that began swirling around the companies two weeks ago.

Yammer is a four-year-old company that offers businesses private social networks to foster communication and interaction among employees; it has attracted 5 million corporate users, Microsoft said Monday, including 85 percent of the Fortune 500 list of the top-earning American companies.

The expensive acquisition will add a cloud-based social-networking component to Microsoft's popular business software offerings.

"The acquisition of Yammer underscores our commitment to deliver technology that businesses need and people love," Microsoft CEO Steve Ballmer said in Monday's news release. "Yammer adds a best-in-class enterprise social networking service to Microsoft's growing portfolio of complementary cloud services."

Yammer was founded in 2008 by David Sacks, a PayPal co-founder. Sacks will continue to lead Yammer as it acts as a stand-alone service and company while joining the Microsoft Office division.

"When we started Yammer four years ago, we set out to do something big," Sacks said. "We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we'll need to scale and innovate."

Yammer's focus on building internal social networks for businesses makes it similar to Palo Alto, Calif.-based Jive Software, which went public last year. Enterprise software has been a hot acquisition market for more than a year, as larger software companies seek to catch up in a market that businesses are examining for its ability to keep workers engaged and communicative. Yammer was one of the first such companies to establish a "freemium" model, with which it offers free services but charges businesses for premium controls such as security tools.

Microsoft would presumably bundle Yammer's services into SharePoint, its cloud-based enterprise offering that includes email, Web conferencing, file sharing and the Microsoft Office suite of Web applications. If it were to make the deal, however, Microsoft would still be behind software rivals such as Salesforce.com Inc. and Oracle Corp., which have already made their big-money moves into the realm. Salesforce has a social-networking offering called Chatter, and recently bought cloud-based social-media software company Buddy Media for nearly $700 million; Oracle purchased two software companies that work in the social-media sector recently, Vitrue and Collective Intellect, as part of its push into cloud computing.

When news of talks between the companies broke two weeks ago, analysts said Microsoft was far behind the competition and unlikely to catch up with the purchase of Yammer.

"Microsoft is too late to the Social Party. Salesforce.com has Chatter, Oracle has Social Relationship Management ... we don't think there is a third slot left for Microsoft," Global Equities Research analyst Trip Chowdhry said in an email earlier this month.

Jonathan Yarmis, principal analyst at The Yarmis Group, told Eweek.com that the price Microsoft is reportedly willing to pay for Yammer_which was valued at $500 million in a February round of financing_shows that they know they're behind.

"In some ways it's about ... time that Microsoft did this," he said. "The fact that they've got to spend $1 billion (to add these capabilities) is in some ways an acknowledgment of a massive (failure)."

The only concern would be for smaller, independent companies such as Jive, Yarmis said, which could fall behind an established business like Yammer if it receives the massive backing Microsoft can offer.

"Yammer doesn't have superior features or anything over their competition, but Microsoft certainly gives them a distribution reach."